India Inc Cheers IIP Growth, Says Not Worried by Inflation Rise

New Delhi: Cheering the rise in industrial output in January, India Inc on Thursday aid this indicates a pick-up in investments setting the stage for higher growth, even as it emphasised that the marginal uptick in retail inflation must not prevent the RBI from cutting rates further.

CII director general Chandrajit Banerjee said: "What is heartening is the impressive performance of the capital goods sector which has notched up double digit growth in January, indicating a pick-up in investments during the month backed by improved sentiment and government action.

"We hope that going forward, industrial growth would firm up further as both the government and the RBI are working in sync to realise the objective of higher growth and moderate inflation".

Industrial production grew 2.6 per cent in January mainly on account of improvement in manufacturing activity and better offtake of capital goods.

The growth in factory output, as measured by the Index of Industrial Production (IIP), was 1.1 per cent in January 2014.

"The recent initiatives taken by the Government and rate cuts announced in the monetary policy has impacted the manufacturing sector positively as the sector has registered a better growth rate of 3.3 per cent as compared to the 0.3 per cent seen in January 2014," said Assocham president Rana Kapoor.

As per government data released today, manufacturing output, which constitutes over 75 per cent to the index, grew by 3.3 per cent in January compared to a meagre growth of 0.3 per cent in the same month a year ago.

The production of capital goods, a barometer of demand, grew by 12.8 per cent in January as against a contraction of 3.9 per cent in same month of last year.

"The announcements made in the budget, cuts in the repo rate announced by RBI and number of other initiatives taken by the Government in the last few months to improve business sentiments are likely to push growth and investments in the industrial sector in coming months," said Arbind Prasad, director general, FICCI.

"However, consumer demand and investments remain tepid and there is a need to stimulate both. Removing infrastructure bottlenecks and lowering the interest rates further are required to generate more demand especially when the external demand remains subdued," said Mr Prasad.

The retail inflation rose to 5.37 per cent in February on higher prices of food items, including vegetables and beverages.

"Increase in IIP though encouraging, needs serious attention as various reforms announced during the recent times must push our industrial growth trajectory to the higher level," PHD Chamber president Alok Shriram said.

"CPI is still in the comfortable trajectory and indicative of more rate cuts by RBI in the coming times to refuel the industrial growth trajectory," Mr Shriram said.

Banerjee also said the marginal rise should not dissuade the RBI from continuing with its rate easing cycle to support growth in the forthcoming monetary policy announcement in April.